Corporate round-up

Force Motors��� announcement to convert its joint venture (JV) with MAN Nutzfahrzeuge AG of Germany into an equal JV is a welcome break for the beleaguered shareholders of Force Motors.

In the past five years, the company has failed to grow its topline despite a boom in the commercial vehicle segment. Moreover, it has been posting losses since FY07. The earlier 70:30 JV with MANMan Force Trucks (MNF) is yet to show any significant activity, despite being three years old now.

Last week���s decision to allow MAN to raise its stake in MNF to 50% is likely to give a fresh lease of life to the JV, besides providing its parent company, Force Motors, with the much-needed cash. Under the deal, Force Motors will sell 14.2% stake in MNF to MAN for a consideration of Rs 300 crore.

MAN will acquire additional equity through a rights issue worth Rs 250 crore to raise its stake to 50%. The deal values MNF at over Rs 2,000 crore. In contrast, Force Motors��� current market capitalisation is a little over Rs 90 crore. The move shows MAN���s commitment to the JV and the importance it attaches to its success in the domestic market.

India is among the world���s top four markets for commercial vehicles and MAN is seeking a significant pie of this growing cake. The Germany-based automotive and engineering major is one of Europe���s leading truck makers. An equal stake will allow MAN to play a leading role in the company���s management and may turn out to be a turning point for the fortunes of Force Motors��� investors.

In High Spirits

United Spirits (USL) has moved a step closer towards consolidating its business by acquiring Balaji Distilleries (BDL) last week in an all-stock transaction. The merger, to be effective from April 1, ���09, will see existing shareholders of BDL getting two shares of USL for every 55 shares held.

Considering Thursday���s share price, the deal appears lucrative for the shareholders of BDL. A quick calculation suggests that BDL shareholders will get one USL share for Rs 770, whereas the latter was traded at over Rs 895 as of Thursday���s closing price.

BDL came into existence in 1983 as a contract manufacturer of USL in South India. As of March ���08, BDL had a brewing capacity of 98,280 kilolitres and spirit capacity of 73,504 kilolitres. It had nearly doubled its brewing capacity last year.

Though the company���s topline has jumped two-fold in the past four years, its profitability has been under pressure due to higher expenses. BDL had reported losses for four consecutive years ended FY07. In FY08, it reported a modest net profit of Rs 1.6 crore (excluding other income) on revenue of Rs 1,949 crore. BDL still has accumulated loss of more than Rs 300 crore at the end of the September ���08 quarter.

The merger will help BDL���s shareholders to be part of a more stable and profitable USL, which is also the third-largest spirits company in the world. On the other hand, the merger will put pressure on USL���s profitability at least for the next few quarters.

System Upgrade

Astra Microwave Products (AMPL), a Hyderabad-based company which manufactures radar sub-systems and other hi-tech wireless products, bagged an order worth Rs 57 crore from Israel's ELTA Systems, a group subsidiary of Israel Aerospace Industries. As per the contract of this order, AMPL will supply radar sub-systems to ELTA Systems, which will subsequently use them for India���s defence programme.

AMPL manufactures a number of hi-tech products, including telemetry components, communication components and radar sub-systems . A few months ago, it had bagged another order worth Rs 25.5 crore from the Indian Meteorological Department.

Currently, the company's total order book stands at Rs 162 crore, which is around 1.2 times its FY08 net sales. Of this, around Rs 100 crore will be executed during the current fiscal year and the rest (including the current Rs 57-crore order) is expected to be executed over the next 18 months.

The company operates in a niche segment. It enjoys a high operating margin of 30-35 % and has a low debt-equity ratio of 0.63. The company���s revenue stream is project-based and its operating cash flow has been volatile for the past few years. At the current price, the stock is trading at a price-earnings (P/E) multiple of close to 13.